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Morgan Stanley

(MS) - Get Morgan Stanley Report

was the Loser among the largest U.S. banking names on Friday, with shares declining over 3% to close at $19.66.

The broad indexes saw 1% declines as Greek trade unions began a two-day strike to protest government austerity measures required to secure a second bailout of 130 euro ($172 billion) from creditors, including the International Monetary Fund. Following the Greek government's announcement Thursday of an agreement for 3.3 billion euro in spending cuts, European finance ministers on Friday demanded another 325 million euro in cuts to the current year's budget, along with a written guarantee that the cuts would be carried through after April elections.


The KBW Bank Index


declined over 1% to close at 44.53, with all 24 index components showing declines for the session.

Reaction to the broad

$25 billion mortgage foreclosure settlement

announced Thursday was muted, as most analysts said that the "big four" U.S. bank holding companies had already made sufficient provisions for mortgage loan losses, or had written-down acquired loans enough to

avoid any major effect on earnings from the settlement

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  • Shares of Bank of America (BAC) - Get Bank of America Corp Report pulled back over 1% to close at $8.07. The shares have now returned 47% year-to-date, after falling 58% during 2011. The company's contribution to the mortgage settlement will total $11.8 billion, but Wells Fargo analyst Matthew Burnell reduced his 2012 earnings estimate for BAC to 60 cents a share from 75 cents, and his 2013 estimate to a dollar from $1.25, because of the company's warning on lower net interest income because of the refinancing and principal forgiveness under the settlement.
  • JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. Report saw its stock decline nearly 1% to close-out the week at $37.61. The shares have returned 15% year to date, following last year's 20% decline. The company's portion of the foreclosure settlement will total $5.3 billion. The company said its performance from prior periods has reflected the estimated costs of the global settlement," and that it "expects that the financial impact of the global settlement on the Firm's financial results for the first quarter of 2012 and future periods will not be material." Bank of America Merrill Lynch analyst Guy Moszkowski said on Friday that JPM's share of the settlement consists of "$1.1 B in 'hard dollars' and $4.2 B in 'soft-dollars,'" with the hard dollars "covered by litigation reserves that were set aside over the past 15 months or so."
  • Shares of Wells Fargo (WFC) - Get Wells Fargo & Company Report declined 1% to close at $30.27. The shares have now returned 11% year-to-date, following a decline of 10% in 2011. The company will also contribute $5.3 billion as part of the foreclosure settlement, and said that at the end of 2011 it had "fully accrued for the Foreclosure Assistance Payment," and that "the expected impact of the Consumer Relief Program was covered in our allowance for credit losses," as well as through impairment write-downs on acquired mortgage loans. Bank of America Merrill Lynch analyst Erica Penala said on Friday that the impact of the settlement would be "minimal," and reiterated her "Buy" rating for Wells Fargo, with a price objective of $33, "despite the run in the stock, especially as peer valuations appear quite stretched relative to both near-term and even 'normalized' EPS power."
  • Citigroup (C) - Get Citigroup Inc. Report pulled back over 2% to close at $32.92, with the shares now returning 28% year-to-date, after last year's 44% drop. Citi will pay a much smaller $2.2 billion as part of the foreclosure settlement, but is also the only one of the "big four" restating its prior period results. The company will "adjust its fourth quarter and full year 2011 financial results to reflect an additional $84 million (after tax) charge," along with an additional $125 million in after tax charges, "in connection with the resolution of related mortgage litigation." Burnell made small reductions in his 2012 EPS estimate for Citigroup to $3.95 from $4.00, and his 2013 estimate to $4.70 from $4.75, "due to lower expected net interest income from the firm's legacy US mortgage portfolio, which is housed in Citi Holdings."

Morgan Stanley's shares have now returned 30% year-to-date, after declining 44% in 2011.

The shares now trade for 0.6 times the company's reported Dec. 30 tangible book value of $31.42 a share, and for 10 times the consensus 2012 EPS estimate of $1.92, among analysts polled by Thomson Reuters.

Morgan Stanley's volatility on a day of European unease is understandable, as the company reported on Jan. 19 that its net exposure to "peripheral" European countries as of Dec. 30 was $6.4 billion, while its French sovereign exposure totaled $1.7 billion. Within the "peripheral" figure, net exposure to Greece was a relatively paltry $160 million.

Collins Stewart analyst Matthew Czepliewicz downgraded Morgan Stanley to a "Hold" rating from a "Buy," following "the share price's near-60% surge since last November," with a $23 price target. The analyst is still ahead of the consensus, estimating that Morgan Stanley will earn $2.12 a share in 2012, followed by EPS of $2.64 in 2012 and $3.12 in 2013.

Interested in more on Morgan Stanley? See TheStreet Ratings' report card for this stock.


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Written by Philip van Doorn in Jupiter, Fla.

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Philip van Doorn


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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.